The U.S. Department of the Treasury issued its second report (of four reports), titled “A Financial System that Creates Economic Opportunities, Capital Markets.”  The Report was issued in response to Presidential Order 137772 setting forth the Core Principles that should guide regulation of the U.S. financial system. The Report addresses various elements of the capital markets, from the equity and debt markets, to the U.S. Treasury securities market, and to derivatives and securitization.  The recommendations relating to the U.S. IPO market and reducing the regulatory burdens for companies seeking to undertake an IPO as well as for smaller public companies may be very familiar to readers of this blog, since many of the measures are included in the Financial CHOICE Act or otherwise addressed in proposed legislation or in rule proposals from the SEC.

See our alert, which may be accessed here.

 

 

 

 

 

 

 

 

Practising Law Institute’s Exempt and Hybrid Securities Offerings is the first practical, accessible resource to provide you with comprehensive legal, regulatory, and procedural guidance regarding these increasingly popular offering methodologies.

Authored by Morrison & Foerster Partners Anna Pinedo and James Tanenbaum, the third edition of Exempt and Hybrid Securities Offerings gives you a useful understanding of the applicable regulations and legal framework for these transactions, as well as the implications of these regulations for structuring transactions.

The treatise provides a detailed analysis of the regulations and guidance affecting exempt and hybrid securities offerings, as well as offers market context and practical structuring advice. Packed with checklists, transactional timelines, SEC guidance, and a wealth of labor-saving sample documents, Exempt and Hybrid Securities Offerings offers the relative advantages and drawbacks of the most commonly used forms of exempt and hybrid offerings. It clearly explains:

  • conducting venture private placements;
  • traditional and structured PIPE transactions;
  • institutional (debt) private placements;
  • Rule 144A offerings;
  • Regulation S offerings;
  • Regulation A offerings and crowdfunding;
  • shelf takedowns;
  • registered direct and ATM offerings;
  • confidentially marketed public offerings; and
  • continuous issuance programs, including MTN and CP programs.

This comprehensive three-volume treatise, with useful forms, has been updated to reflect changes brought about by the Dodd-Frank Act, the JOBS Act, the FAST Act, and other recent regulatory changes.

For more information, please click here.

On September 14, 2017, the staff of the SEC’s Division of Corporation Finance (the “Staff”) issued three new compliance and disclosure interpretations (“C&DIs”) addressing Regulation A offerings with a concurrent Exchange Act registration and clarifying when financial statements must be current and when annual and quarterly financial statements must be filed.  Highlights of the C&DIs (Questions 182.21, 182.22 and 182.23) include, among other things, the following guidance:

  • When an issuer registers a class of its securities pursuant to the Exchange Act on a Form 8-A concurrently with (i.e., within 5 days after) the qualification of a post-qualification amendment to a Form 1-A, the financial statements in the post-qualification amendment must be current at the time it is qualified.
  • If an issuer’s qualified Form 1-A did not contain financial statements for the last full fiscal year preceding the fiscal year of effectiveness of the Form 8-A (filed concurrently with the qualification of a post-qualification amendment to the Form 1-A), then the Staff would not object if the issuer files its first annual report on Form 10-K for the fiscal year preceding the fiscal year in which the Form 8-A went effective within 90 calendar days after effectiveness of the Form 8-A.
  • If an issuer’s qualified Form 1-A did not contain financial statements for one or more quarterly periods that followed the most recent annual or semi-annual period for which financial statements were included in the Form 1-A and that were completed prior to effectiveness of the Form 8-A, then the issuer is required to file quarterly reports for these quarterly periods.  The Staff would not object if the issuer files a Form 10-Q for the completed quarterly period, or two Forms 10-Q if financial statements for more than one quarterly period were not included in the Form 1‑A, within 45 days after effectiveness of the Form 8-A.

On September 13, 2017, the SEC Advisory Committee on Small and Emerging Companies held an open meeting to discuss the Sarbanes-Oxley (“SOX”) auditor attestation requirement, the final report that will be issued prior to the expiration of the Committee’s current charter and whether updates are needed to Securities Act Rule 701.  In its discussion of the SOX auditor attestation requirement, the Committee considered the associated compliance costs and a proposal to change the “smaller reporting company” (“SRC”) and “non-accelerated filer” definitions to a company with either (1) a public float of less than $250 million or annual revenues of less than $100 million.  The SEC’s proposed amendments to the SRC definition from June 2016 did not cover non-accelerated filers.  The Committee then discussed its draft report to the SEC, which emphasized a number of recommendations it has made in the past, including the following:

  • Providing regulatory certainty for finders, private placement brokers and platforms that are not registered as broker-dealers and are involved in primary and secondary offerings of unregistered securities in order to help smaller businesses raise capital.
  • Supporting an expansion of the “accredited investor” definition to take into account measures of sophistication, regardless of income or net worth, thereby expanding rather than contracting the pool of accredited investors.
  • Extending to SRCs the same accommodations made to EGCs with respect to disclosure requirements, and finalizing the proposed amendments to increase the financial thresholds in the SRC definition and revising the definition of “accelerated filer” to include companies with a public float of $250 million or more, but less than $700 million.
  • Amending Item 407(c)(2) of Regulation S-K to require issuers to describe, in addition to their policy with respect to diversity, if any, the extent to which their boards are in fact diverse, by including disclosure regarding race, gender and ethnicity of each board member.
  • Preempting state regulation of secondary trading in securities of Tier 2 Regulation A issuers that are current in their ongoing reports in order to improve secondary market liquidity.
  • Allowing smaller exchange-listed companies to voluntary choose trading increments or tick-sizes greater than the one penny in order to help small and mid-cap companies raise capital.

The Committee then turned to a discussion of various proposed changes to Securities Act Rule 701, including, among others, removing the requirement that consultants be “natural persons,” removing the $5 million aggregate limitation (the “hard cap limit”), clarifying that material amendments to any security previously issued under Rule 701 does not result in a new grant or sale, clarifying the application of Rule 701 to RSUs, clarifying that expanded disclosure is only required to be provided for sales that occur after the hard cap limit is exceeded, and clarifying the timing and delivery requirements for expanded disclosure.

A copy of the Committee’s draft report is available here.

On September 5, 2017, the U.S. House of Representatives approved H.R. 2864 (Improving Access to Capital Act) by a vote of 403-3.  The bill, which was sponsored by Rep. Krysten Sinema and previously amended by the Committee on House Financial Services on September 5, 2017, directs the SEC to amend Regulation A to permit Exchange Act reporting companies who otherwise meet all of the requirements under Regulation A to issue securities under Regulation A.  Currently, Regulation A only applies to non-reporting companies.  Allowing reporting companies to use Regulation A would provide them with a cheaper and faster way to raise capital due to the shorter SEC review process, and in the case of Tier 2 offerings, exemption from state blue sky review.  The expansion of Regulation A to include reporting companies might also increase the quality of future Regulation A issuers, broaden the investor base for Regulation A offerings and ultimately enhance liquidity in the secondary market.  In addition, the ability to use Regulation A could prove useful to reporting companies that do not qualify to use Form S-3 for primary offerings.

The full text of the bill can be found here.

October 19-20, 2017

PLI California Center
685 Market Street
San Francisco, CA 94105

This program will enhance your understanding of business strategies, accounting fundamentals and vocabulary used by management, investors, auditors and bankers. Practical advice and application of information to actual situations and financial reports will provide participants with opportunities to immediately implement growth and broaden capabilities.

Partner Anna Pinedo will host a session entitled “Financing Alternatives” on day one of the program. Topics will include:

  • Common financing alternatives — debt, equity and hybrids;
  • Sources of funding: public and private markets – the roles of advisors in different transactions;
  • Liquidity: Raising and deploying capital;
  • Explain the dimensions of capital management; and
  • The challenges of effective management of capital.

PLI will provide CLE credit.

For more information, or to register, please click here.

The SEC’s Division of Economic and Risk Analysis (DERA) recently produced a Report to Congress regarding the impacts of the Dodd-Frank Act on access to capital for consumers, investors, and businesses, and market liquidity.  Although the Report is principally focused on liquidity, it does provide some interesting statistics regarding the primary issuance of equity securities.

The Report notes that total capital formation from 2010 when the Dodd-Frank Act was enacted through year-end 2016 was approximately $20.2 trillion, of which $8.8 trillion was raised through registered offerings, and $11.38 trillion was raised in exempt offerings.  The report notes the substantial increase in reliance on exempt offerings.  Regulation D offerings have more than doubled since 2009.  However, the report notes that the amount sold in reliance on Rule 506(c) represented only 3% of the amount sold in reliance on Rule 506.  The average amounts raised in initial Rule 506(c) offerings is much smaller than the average amount reported sold in  Rule 506(b) offerings.  Rule 144A issuances remain stable.

The Report also provides data regarding Regulation A and crowdfunded offerings, and may be accessed here:  https://www.sec.gov/files/access-to-capital-and-market-liquidity-study-dera-2017.pdf.

In our Practising Law Institute treatise Exempt and Hybrid Securities Offerings, we refer to the concept of “integration” under the securities law as a bogeyman of sorts for practitioners. In this day and age of tweets and posts, and where public and “private” offerings are hard to distinguish from one another, is the concept of integration antiquated? Or is it perhaps due for a comprehensive re-examination by the Securities and Exchange Commission? As we discuss below, many of the fundamental principles of integration of offerings, aggregation of offerings for purposes of securities exchange rules, and communications issues like “gun-jumping” and “quiet periods” may have been so eroded as to no longer be meaningful.

To view our article, click here.

This article has been published in The Current: The Journal of PLI Press, Vol. 1, No. 1, Summer 2017 (© 2017 Practising Law Institute).

July 13 – 14, 2017

PLI New York Center
1177 Avenue of the Americas
(2nd Floor)
New York, NY 10036

PLI’s Understanding the Securities Laws 2017 conference will provide an overview and discussion of the basic aspects of the U.S. federal securities laws by leading in-house and law firm practitioners as well as SEC staff. Emphasis will be placed on the interplay among the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act, the Dodd-Frank Act, the JOBS Act, the securities related provisions of the FAST Act, related SEC regulations and significant legislative and regulatory changes and proposals made in the wake of the 2016 election.

Morrison & Foerster Partner Anna Pinedo will lead a session entitled “Securities Act Exemptions” on Day One of the program. Topics will include:

  • Exempt securities versus exempt transactions;
  • Private placements, including  offerings under Rules 504 and 506 of Regulation D;
  • Regulation A+ offerings;
  • “Intrastate” offerings, including new Rule 147A ;
  • Crowdfunding;
  • Employee equity awards;
  • Rule 144A offerings;
  • Regulation S offerings to “non-U.S. persons”; and
  • Resales of restricted and controlled securities:  Rule 144, Section 4(a)(7) and 4(a)(1½).

PLI will provide CLE credit.

For more information, or to register, please click here.

May 22 – 23, 2017

PLI New York Center
1177 Avenue of the Americas
(2nd Floor)
New York, NY 10036

PLI’s Private Placements and Hybrid Securities Offerings 2017 conference is designed for corporate and securities attorneys, compliance professionals, control room personnel, bankers and allied professionals who deal with private placements and other exempt and hybrid offerings. The faculty will address the changes to private and exempt offerings brought about by the JOBS Act, including matchmaking platforms, “accredited investor” crowdfunding, offerings using general solicitation, Rule 144A offerings, and the practical implications of these changes for issuers, broker-dealers and investment advisers. In addition, the faculty will address the basics of private placements, sales of restricted securities, Rule 144 and Section 4(a)(1-1/2) transactions and block trades. The panelists will discuss the considerations that have led many companies to remain private longer and defer IPOs, while creating liquidity opportunities for holders through private secondary trading markets. Panelists will address the basics of traditional private placements, PIPE transactions, and Rule 144A transactions, as well as recent developments affecting each of these capital raising alternatives.

Partner Anna Pinedo will serve as chairperson for this event and will speak on the “Welcome and Introduction to Private Placements and Hybrid Financings” panel on Day One of the conference and on the “Welcome and Introduction to Conducting Hybrid Offerings” panel on Day Two. Senior Of Counsel Marty Dunn will speak on the “Overview of 4(a)(2) and Regulation D” panel on Day One.

To register for this conference, or for more information, please click here.